The Start of the Surcharging Era?

Do you feel annoyed when having decided what to buy, you get to the checkout only to find out that the price has increased because the merchant slapped an extra fee for paying by card? I know, I do.

The card networks know that as well, which is why they have been insisting on a “no surcharge” rule – i.e. that the customer price should not be discriminated based on the choice of their payment method. The same product should cost the same irrespective of whether the customer chose to pay by credit card, debit card, check or cash.

The rule has not always been observed in practice, particularly in many European markets, sometimes against explicit regulations of card schemes. The European budget airlines are notorious for charging hefty fees (way above any conceivable processing costs or interchange) for the privilege of paying by card, whilst typically the only way to buy a ticket is online and the only way to pay is by card – a practice that attracted widespread criticism from consumer groups and other industry bodies. Surcharging is more prevalent online, although my local deli shop charges me £0.35 if I pay by card (debit or credit.) Many merchants in Denmark also surcharge.

However, the US merchants have so far been prohibited from surcharging. The first blow to the “same prices” principle in the US came from Durbin amendment, which stipulated that the merchants could discount for cash or debit card purchases. Then, as a result of the credit card settlement, the US merchants got permission from the card networks to surcharge consumers using a credit card from January 27, 2013.

It will be interesting to see how many merchants do take up on their new right to surcharge. 10 of the US States limit surcharging by law: California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas, so a large national chain operating across multiple states, may not be able to surcharge anyway. To avoid a “free for all” situation, sensibly, the card networks introduced rules for how surcharging should be implemented in practice, such as asking the merchants to notify the networks of their plans to surcharge 30 days in advance, requiring to clearly post signs in the stores to inform customers, and defining the surcharging limits. It remains to be seen how many merchants decide that surcharging is “worth the trouble.”

Representatives from the National Retail Federation, retail trade association, were quoted this week saying that “while there conceivably could be exceptions, merchants in general have no intention of surcharging.” That may be true. What did surprise me was another statement from NRF: “The lawsuit sought to bring down swipe fees and the prices paid by consumers, not to increase prices. The card companies’ new surcharging proposal runs 180 degrees counter to the intent of the lawsuit.”

Now, I may have missed something, but I always thought that it was the merchants themselves who have long lobbied for their right to surcharge. Now that the settlement is in place, they seem to be implying that it’s the card networks who are forcing the surcharging on merchants. Are the networks “damned if they do, and damned if they don’t?”